Convert grease pencil disabled
You are in Edit mode of the mesh. If you want to convert Grease Pencil layer into curves / mesh you need to exit Edit mode of any other object. Or you can use Bsurface addon to convert GP drawing into the mesh right in Edit mode on the fly.

Simple Converting Grease Pencil drawing

Once something is drawn on the mesh, exit Edit mode of the mesh (the Edit mode of Grease Pencil may be left on) and choose Convert in the Toolshelf > Grease Pencil. You'll have options to choose that you want it to convert to - Path, Bezier Curve or Polygon Curve.


Converting sketches to geometry
Drawing with Grease Pencil


Convert Grease Pencil in Edit mode

Use Bsurfaces addon to use Grease Pencil as retopo tool and convert it into mesh surface while in Edit mode.
After enabling addon create some simple mesh, enter Edit mode and delete its vertices. After that, draw with Grease Pencil and once finished, in the Toolshelf > Tools > BSurfaces rollout press Add Surface to convert your strokes to surface.



The Bsurface needs either 2 Grease Pencil strokes (shown above) or one stroke and one selection of geometry (below). To make strokes drawn with Grease Pencil to connect to already existing surface draw a stroke, select the edge loop of that surface which is the nearest to the stroke and then proceed to Add Surface.



Watch the tutorial on more techniques about using this functionality.